San Jose Real Estate Market Changes with New Companies In Town

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One of San Jose’s goals is to attract and retain big companies within its City limits but at what cost is it willing to do so and how will this affect the real estate market?  Is San Jose prepared to drift away from planned growth areas, more freely convert zoning and bend whatever development policies it needs to achieve  its goals?

A few companies have recently been testing the waters… Here are a few examples:

Netflix:

Netflix has just inked a lease in the North First Street Corridor at 1732 N.First St. bringing with it additional tax dollars.  Interesting strategy the Economic Development Department of the City of San Jose negotiated (pending City Council approval).  As reported by the Mercury News, San Jose will split the sales tax revenue for the first three years as follows:

Year 1:  San Jose= 50% net sales tax revenue 
Year 2:  San Jose= 60% net sales tax revenue
Year 3:  San Jose= 70% net sales tax revenue    

It’s a great example of how the City is willing to be creative in order to attract a new company.  How does this help the real estate market?  In many ways:  

1. Netflix will be an ideal addition to tenants along the North First St.corridor which helps with the City’s plan of adding growth into this area.

2. The new lease helps reduce vacancy rates in the office market.

3. Having a high profile tenant such as Netflix will help attract other companies to the North First Street corridor thus strengthening the market.

 
Cisco:

Cisco has been a long time resident of San Jose and another critical source of precious tax dollars.  The company is critical enough that the Planning Commission on July 27^th voted 6-0 to approve Cisco’s request to wave the development requirement to build an additional 1M square feet of office space.  Then, on August 2^nd, the City Council voted and approved the same request.       

This action by the Planning Commission and City Council demonstrates yet again how San Jose is being flexible to maintain its relationship with Cisco even though itbdelays development of the rest of their campus.
How does it help the real estate market?

1.  Had the City not been flexible with Cisco and forced the company to build an additional 1M square feet of office, the result would have been disastrous.  Already Cisco is in contraction mode having just cut 6,500 jobs.  Who would they put into the new buildings?  Probably would have had to lease the space to another company.  

But here again is a problem.  The North First Street corridor already has huge vacancy and cannot sustain another flood of vacant office space.  The Market would have been further weakened.   

For more information on the North First Street corridor office leasing activity, click HERE for a Q1 Office Market overview produced by Colliers International.  

You can also contact the Leasing Department at Barry Swenson Builder for additional information.  Click -> HERE